Q2FY25 slump hits Nelcast as export and domestic markets falter – Will FY26 bring growth?

Nelcast Limited, one of India’s key producers of ductile and grey iron castings, recently disclosed its financial performance for the second quarter and half-year of FY25. Facing challenging market conditions, Nelcast reported revenue of ₹335 crores in Q2FY25, marking a decline from ₹362.6 crores in Q2FY24. Half-year revenue also saw a drop to ₹637.4 crores from ₹659 crores year-on-year, reflecting dampened demand across both domestic and export markets, particularly in the commercial vehicle (CV) sector and United States markets.

Q2FY25 Performance Highlights

In Q2FY25, Nelcast’s EBITDA registered at ₹26 crores, down from ₹36.1 crores in the same period last year, with EBITDA margin narrowing to 7.8% compared to the previous 9.9%. Profit after tax also saw a sharp decline, falling to ₹9.8 crores from ₹16.6 crores in Q2FY24. The company’s EBITDA/kg metric stood at ₹11.8, mirroring the decline in earnings, which Nelcast attributed to both subdued domestic demand and a slowdown in key export markets. Export revenues, which constitute 36% of Nelcast’s overall revenue, have been hindered by economic uncertainties in the United States amidst its presidential elections, further amplified by stagnant demand in the domestic tractor market.

Deepak Reddy Ponnavolu, Managing Director and CEO of Nelcast, noted that the company has faced a challenging Q2FY25, citing a combination of dampened domestic CV demand and a lull in exports to the United States. He expressed, however, that despite these obstacles, Nelcast remains committed to its long-term objectives, with ongoing product development that is expected to attract new orders by the close of FY25. This focus on product innovation aligns with the company’s strategic goals, aiming to strengthen its foothold in both domestic and global markets.

Sector Revenue Insights

Analyzing sector-wise revenue, the mid and heavy commercial vehicles (M&HCV) and tractor segments together contributed over half of the revenue, with exports comprising a notable 36% of total income in H1FY25. However, the revenue mix saw a shift, as M&HCV’s contribution fell from 37% in H1FY24 to 34% in H1FY25, while tractor segment contributions rose slightly from 23% to 25%. Railways, off-highway equipment, and other sectors remained relatively minor contributors.

Positive Outlook for FY26

Looking forward, Nelcast remains optimistic about a turnaround in FY26, expecting demand recovery post-U.S. elections and in light of stricter emission regulations that could stimulate growth in the automotive sector. The company is also actively exploring new export markets to diversify its revenue base and lessen dependency on its current portfolio. Nelcast’s strategic foresight, focusing on market diversification and innovation, is projected to bolster its long-term growth trajectory.

As a manufacturing leader with a significant stake in the M&HCV and tractor industries, Nelcast’s strategy in the coming fiscal periods will hinge on its ability to adapt to shifting market demands and leverage new opportunities in emerging economies.

Expert Opinion

Analysts suggest that while Nelcast’s performance has been impacted by external market factors, its resilience and focus on product innovation could be instrumental in the company’s recovery. Industry experts believe that Nelcast’s renewed focus on emission-compliant products aligns with global regulatory shifts, potentially boosting its competitiveness in international markets where such standards are becoming mandatory. The company’s extensive product lineup, coupled with its infrastructure, positions it well to capitalize on anticipated market rebounds, especially in export-heavy segments.